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Fallout of board battle: Tata Sons free to become private firm, rules NCLT

Shally Seth Mohile/Mumbai 13 Jul 18 | 01:49 AM

The Mumbai Bench of the National Company Law Tribunal (NCLT) justified Tata Sons’ conversion into a private limited company from a deemed public limited one. This was one among the various points elaborated upon in the 368-page order on the Tata-Mistry verdict on Thursday. The Bench had ruled in favour of Tata Sons on July 9.


Cyrus Mistry’s family, which owns 18.4 per cent in Tata Sons’ equity capital, had moved a petition in the NCLT, opposing Mistry’s sacking in October 2016 as well as the conversion of the Tata group holding company into a private limited company. 

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Presided over by B S V Prakash Kumar and V Nallasenapathy, the Bench dismissed all allegations and pleas made by the Mistry family firms as it found no merit in the case.


Mistry had contested that taking Tata Sons private would constraint the ability of his family firms to sell their stake. Drawing from the provisions of the Companies Act, 2013, and 1956, Kumar said that Tata Sons was at liberty to go ahead with changing its legal status. 

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“We are of the view that Section 43A (2A) is still applicable to say that the company is at liberty to inform the RoC (Registrar of Companies) that it has become a private company and thereupon registrar shall substitute the words “private company" for the words “public company," Kumar said in the order. 


The change in status, he added, would not be tantamount to an oppression against the Mistry family — the largest shareholder in Tata Sons after Tata Trusts — because the law itself directs the company to become private according to Section 43A (2A) of the Companies Act, 1956. Under the Companies Act, 2013, there is no provision for a deemed public company. It only has two classes, one is public company and another is private. “If the articles of the company are looked into, it falls within the definition of a private company under new regime as well. Therefore, it is quite obvious that it will continue as private company," he said. 

ALSO READ: Cyrus Mistry has harmed interests of Tata group, says V R Mehta


The Mistry family, in its petition to the NCLT against the conversion, had questioned the timing of filing the conversion application and alleged that it indicated Tata Sons had filed it with a “malafide intention" to make the company private and then to invoke Article 75 against the Mistry family. The article gives Tata Sons the power to ask shareholders to sell their holdings by passing a special resolution, a rule that can be potentially used to force the Mistry family firms to exit the Tata group. 

In his order, Kumar said the share restriction under Article 75 had never been out of the books, it was there before it had become public by virtue of the amendment in 1975, it was there even after 1975, it is there even today as well. Therefore, there cannot be an argument that since Article 75 is in the articles of the company, Tata Sons was likely to invoke Article 75 against the Mistry family when it becomes a private company. 


In a detailed order, the Bench elaborated upon the reasons which culminated in the dismissal of Cyrus Investments’ petition against Tata Sons. The two-judge Bench ruled in favour of Tata Sons as it didn’t find any merit in any of the allegations by Mistry’s investment firms. 

ALSO READ: Cyrus Mistry case will become precedent in oppression disputes: Experts


He also justified Mistry’s sudden removal as Tata Sons’ executive chairman on October 24, 2016. Upholding the sovereignty of a company’s board, Kumar said “in corporate democracy, decision making always remains with board of directors as long as they enjoy the pleasure of the shareholders. Likewise, even executive chairman will also continue as long as he enjoys the pleasure of the board of directors," he said.


On the allegations against Ratan Tata and other Tata Sons directors, Kumar noted that the Mistry investment firms mostly relied upon statements of third persons rather than the facts admitted against each other. 


“The risk lying in entertaining such cases is that there is a chance of arriving to a conclusion without ascertaining truth in those facts, therefore, in view of the above reasoning, on the believable facts available, we have not found any truth in the allegations made against (Mr) Tata, and the other respondents," he said.


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